In the context of the review of the Block Exemption Regulation applicable to vertical agreements (VBER)^[1] and its guidelines, which expire on 31 May 2022, the Commission published on 8 September its Staff Working Document on the evaluation stage conducted since October 2018 .

This document is the result of more than eighteen months of a first stage evaluation aimed at identifying the difficulties arising from the application of the Regulation and its Guidelines in their current wording, and thus determining whether and in what form these texts should be renewed.

This evaluation was carried out on the basis of contributions from stakeholders (companies and business associations, lawyers, national competition authorities) as well as an independent study commissioned by the Commission. It also takes into consideration the conclusions of the Commission's e-commerce sector enquiry (available here) .

The evaluation shows that the Regulation and its Guidelines remain relevant, in that they provide a certain level of legal certainty for stakeholders and enable them in particular to self-assess the compliance of their agreements with competition law, thus generating significant savings.

Unsurprisingly, however, the evaluation showed that the current economic environment is very different from the context in which the Regulation was adopted ten years ago. The rules currently in force were enacted at a time when e-commerce was still in its infancy and when there was some reluctance on the part of some economic operators to change their business model, which justified the establishment of a stricter legal framework to support the development of e-commerce

Since 2010, e-commerce has grown and continues to develop exponentially. The Commission notes in this context that today's consumers are looking for an "omni-channel" offer enabling them to alternate freely between the various sales channels, online and offline, implying the preservation of both channels.

The evaluation has shown that this growth in online commerce is creating new difficulties in understanding and implementing certain provisions of the Regulation and its Guidelines, which are no longer appropriate.

The main difficulties identified during the evaluation are presented below.

LEGAL CERTAINTY AND CONSISTENCY

In general terms, the evaluation shows that there is still too much room for manoeuvre in the implementation of the rules, leading to a significant risk of diverging interpretations by national competition authorities and courts which inevitably reduces the legal certainty provided by the Regulation.

Stakeholders insisted in particular on the need to update the texts in the light of the most recent European case law (notably the Coty^[2] and Auto 24^[3] judgments) and the decisions of the national competition authorities (for example, the Asics^[4] case in Germany).

SELECTIVE DISTRIBUTION

The Commission notes that distribution models have evolved significantly, with an increasing use of selective distribution, which would give suppliers greater control over how their products are retailed.

It also notes that price transparency has increased with the development of e-commerce. While such transparency may allow consumers to get a better deal, it has also increased the phenomenon of "free riding". The Commission adds that while price transparency may be beneficial to consumers, it may affect competition between players in a same market on other parameters such as quality, brand attractiveness and innovation.

On this subject, the Commission notes from the evaluation that the rules governing this distribution method are not sufficiently clear and suited to the new market conditions, so that changes are to be expected in particular as regards:

• the conditions under which a brand may resort to a selection criterion linked to the ownership of a brick-and-mortar shop,
   
• the exact scope of the concept of "equivalence" in the criteria imposed on online and offline distributors,
   
• the possibility of restricting the use of certain online tools, such as marketplaces, price comparison tools, social networks and paid referencing (purchase of keywords),
   
• the concepts of passive sales and active sales, particularly on the Internet,
   
• the possibility of charging different retail prices depending on whether sales are made online or offline (dual pricing),
   
• compatibility between selective and exclusive distribution, etc.

RETAIL PRICE PARITY CLAUSES

The Commission notes a sharp increase in retail price parity clauses in vertical agreements, particularly in the consumer goods sector and more particularly in the tourism sector, whose distribution models have changed drastically since 2010 with the emergence of online travel agencies (OTAs).

These clauses may be required from distributors (this is especially the case in the FMCG sector) to avoid long negotiations with suppliers and thus maintain competitive prices. They can also be imposed by the platforms themselves.

The evaluation showed that the Regulation and its Guidelines are not sufficiently clear on how the compatibility of such retail price parity clauses with Article 101 should be assessed, which could lead to a differentiated treatment by the various national authorities, necessarily generating a situation of legal uncertainty. The study commissioned by the Commission confirms that more clarity is needed on this point.

Stakeholders' opinions on the effects of such clauses diverge and the various elements gathered by the Commission confirmed that the potential effects of such clauses were mixed, depending on the nature of the clause in question and the market.

CONCEPT OF AGENCY

Although most respondents seem to consider that the Guidelines offer an adequate level of legal certainty, the evaluation highlighted some difficulties regarding the qualification of an "agency"^[6], agreement, making it straightforward to avoid the application of Article 101§1 of the TFEU.

Indeed, some stakeholders stressed that the Guidelines were not sufficiently precise as to the level and types of risks to be borne by distributors, to consider that a vertical relationship constitutes an agency agreement within the meaning of the Regulation.

The evaluation showed that there were still difficulties in implementing this concept, in particular on how to apply it to online platforms, whose relationships with suppliers cannot be understood in the same way as the more "traditional" relationships between suppliers and distributors. The evaluation also showed that there was no consensus between the various national authorities on how the concept should be applied to platforms.

Lastly, the Commission mentions certain difficulties concerning the application of the agency concept to tripartite relations involving an intermediary that finds itself subject to the commercial conditions agreed between the supplier and the final customer.

FRANCHISE AGREEMENTS

Overall, the evaluation shows that the Guidelines provide a reasonable level of legal certainty regarding vertical restrictions contained in franchise relationships.

Nevertheless, stakeholders have identified several aspects of the rules applicable to franchise relationships that do not seem to be sufficiently clear, in particular with regard to:

• the very concept of a franchise, which is not defined by the Regulation and is not sufficiently distinguished from other distribution methods, so that it is difficult to identify which rules are applicable to franchising and which are not,
   
• the concept of know-how, the definition of which in the Regulation differs from that in the Directive on the protection of business secrecy; as well as the "substantial" nature of such know-how,
   
• the concept of "secret", the scope of which is not always easy to grasp,
   
• how franchise restrictions should be handled, in particular regarding territorial restrictions, online sales restrictions, non-competition clauses or direct/indirect measures aimed at maintaining consistency in retail and promotional pricing within the network,
   
• the possibility of combining elements specific to franchising and exclusive territories or clienteles.

NEXT STEPS

Following this first stage of the evaluation, the Commission will launch an "impact assessment" during which it will thoroughly examine the difficulties identified, and in which stakeholders will again be able to participate in a new public consultation scheduled for the end of 2020.

Following this impact assessment, the Commission is expected to publish a first draft of revised rules for stakeholder comment in the course of 2021 (for further details on the evaluation process, please go to the DG Trade dedicated web page).

[1] Regulation no. 330/2010 of 20 April 2010 concerning application of Article101§3 of the TFEU to vertical agreement categories and concerted practices
[2] Decision of 6 December 2017, case C-230/16, Coty Germany GmbH / Parfümerie Akzente GmbH
[3] Decision of 14 June 2012, case C-158/11, Auto 24 SARL / Jaguar Land Rover France SAS
[4] Decision of 26 August 2015, no. B2-98/11 (summary available here). In this decision, the German Competition Authority considered that the prohibition imposed on a third party to use the ASICS trademarks on its website and the prohibition to use price comparison sites constituted a restriction of competition contrary to Article 101§1 TFEU.
[5] See in particular §12-21 of the Guidelines

This legal update is not intended to be and should not be construed as providing legal advice. The addressee is solely liable for any use of the information contained herein and the Law Firm shall not be held responsible for any damages, direct, indirect or otherwise, arising from the use of the information by the addressee.